No sign of Gaza ground war. Emergency aid truck convoy enters Gaza. 0 (0)

A weekend update on the Middle East, where there are no reports that the ground war in Gaza has begun yet.

  • An convoy of trucks carrying emergency aid has entered into Gaza
  • The aid, a consignment of food, water and medical supplies, has arrived while air attacks continue
  • The UN and US have warned Hamas from stealing the supplies, that the aid is intended for the Palestinian people: „We have been clear: Hamas must not interfere with the provision of this life-saving assistance“ (US Sec State Blinken)
  • A summit in Cairo failed to reach a ceasefire agreement

For markets, the impending ground war saw shifts into ‚haven‘ Treasuries at the end of the week, albeit against the persistent UST downtrend.

CHF also gained towards the end of last week, hourly candles chart:

No ground war over the weekend should be likely to prompt tentative moves back into non-safe haven assets at the beginning of the new trading week.

This article was written by Eamonn Sheridan at www.forexlive.com.

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Newsquawk Week Ahead: EZ/UK flash PMIs, ECB, BoC, US PCE, Australian CPI 0 (0)

  • MON: Bank of Israel Announcement, EZ Consumer Confidence (Oct), US National Activity Index (Oct)
  • TUE: German GfK Consumer Confidence (Nov), EZ/UK/US Flash PMIs
  • WED: BoC Announcement, NBH Announcement, Australian CPI (Q3/Sep), German Ifo Survey (Oct)
  • THU: ECB Announcement, CBRT Announcement, South Korean GDP Advanced (Q3), US GDP Advanced (Q3)
  • FRI: CBR Announcement, Japanese Tokyo CPI (Oct), Australian PPI (Q3), US PCE (Sep)

NOTE: Previews are listed in day order

EZ FLASH PMI (TUE): Expectations are for October manufacturing PMI to rise to 43.7 from 43.4, services to tick lower to 48.6 from 48.7, and lifting the composite at 47.4 vs. prev. 47.2. The prior report saw a modest downtick in the manufacturing component to 43.4 from 43.5, whilst an increase in the services headline to 48.7 from 47.9 was enough to lift the composite metric to 47.2 from 46.7. For the upcoming release, analysts at ING state “while much less relevant than the ECB meeting, it has caused some movement in recent months as weakening economic data from the eurozone has raised concerns over a possible downturn”. The desk adds that “a downbeat reading for the PMI would be negative for euro sentiment as it would increase expectations of a recession”.

UK FLASH PMI (TUE): Expectations are for October’s services PMI to rise to 49.5 from 49.3, with the manufacturing reading seen ticking higher to 44.6 from 44.3. The prior report saw services tick lower to 49.3 from 49.5 and manufacturing advance to 44.3 from 43.0, leaving the composite at 48.5 vs. prev. 48.6. This time around, economists at Oxford Economic expect the data to “signal a further contraction in private sector output”. On manufacturing, the consultancy expects that the slowing in the pace of new orders falling, should provide some respite for the October release. On services, Oxford Economics is less constructive amid lower demand, particularly from abroad. From a policy perspective, a soft release is unlikely to have much bearing on the November meeting given that the MPC already paused last month. However, signs of a more pronounced slowing could see a bringing forward of rate cut expectations in 2024.

BOC ANNOUNCEMENT (WED): The market currently prices in an 80% probability of rates being left unchanged, while the probability for a BoC hike in October diminished to under 20% following Canada’s September inflation data, where CPI cooled by more than the consensus was expecting. Additionally, analysts have become more cautious on the growth outlook after the economy saw a surprise contraction in Q2, and activity has been subdued since, as a result of previous BoC tightening, wildfires/floods and labour market industrial action. There are also growing concerns that higher rates will heap pressure on household mortgage costs. The labour market, however, continues to show resilience, with jobs being added in August and September, and the unemployment rate remaining low. Analysts at ING note that BoC Governor Macklem recently argued that the expected trajectory of inflation is where the central bank is focussed, stressing the importance of inflation expectations and wage growth, and although these can be volatile, they are trending upwards. „Slower-than-expected inflation, a clouded growth outlook and higher bond yields means the BoC is likely to overlook jobs tightness and keep rates on hold,“ ING writes, adding that „there is still all the interest in keeping a higher-for-longer narrative alive, but markets may start to shed some doubts on it.“

AUSTRALIAN CPI (WED): The quarterly metrics for Q3 and monthly metrics for September will be released on Wednesday. September Weighted CPI Y/Y is forecast to tick higher to 5.4% from 5.2%, whilst the Q3 Q/Q rate is expected at 1.1% (prev. 0.8%) and Y/Y at 5.3% (prev. 6.0%). Further on the Quarterly metrics, Weighted Median Q/Q is expected at 1.0% (prev. 1.0%), Y/Y at 5.0% (prev. 5.5%), while the Trimmed Mean Q/Q is seen at 1.1% (prev. 0.9%) and Y/Y at 5.0% (prev. 5.9%). Analysts at Westpac suggest “This month will see a quarterly update of some critical services prices including health” and add that forecasts “have a larger than usual degree of uncertainty due to our uncertainty around what the full impact of the changes to government rebates will mean for childcare prices.” The desk also highlights that last month, although the August print was in line with Westpac forecasts, the analysts were surprised by the smaller-than-expected rise in housing amid softer-than-expected rents. From an RBA standpoint, Governor Bullock is due to speak on Tuesday, a day before the CPI metrics, whilst in her most recent speech, she said she is a bit more worried about the inflation impact from supply shocks and seeing demand slow and per capita consumption declining, and if inflation remains higher than forecast, the RBA will have to respond with policy. The most recent RBA minutes also tilted towards the hawkish side and noted “Further tightening may be required if inflation is more persistent than expected”, while “rising house prices could support consumption and might signal policy is not as tight as assumed.”

ECB ANNOUNCEMENT (THU): Consensus is unanimous in expecting the ECB to stand pat on all three of its key rates with markets virtually signalling a 100% chance of such an outcome. The expectation for unchanged rates has stemmed from the September policy statement, which noted that the GC now judges that rates „have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target“. Since the prior meeting, headline Y/Y CPI cooled to 4.3% in September from 5.2%, whilst the super-core metric fell to 4.5% from 5.3%. Furthermore, the Composite Eurozone PMI for September rose to 47.2 from 46.7, but remained deep in contractionary territory with the accompanying report noting “output volumes across both the manufacturing and service sectors were constrained by deteriorating demand conditions”. In terms of commentary from the Bank, President Lagarde has continued to reiterate that rates are sufficiently restrictive, whilst also noting there is more policy lag in the pipeline from past hikes. Even the hawks on the Governing Council such as Netherlands’ Knot have stated that they are “comfortable” with the current level of interest rates. Furthermore, it is also worth noting that recent increases in Eurozone bond yields will act to tighten financial conditions whilst geopolitical risks in the Middle East have given reason for caution. That being said, as has been the case for other major central banks that have engineered a “pause”, policymakers will likely wish to keep optionality over further rate hikes beyond October, particularly given the recent increase in oil prices. In terms of other policy measures, a couple of policymakers have suggested that an early end to PEPP reinvestments (currently set to run until the end of 2024) should be discussed at the upcoming meeting. However, ING is of the view “the surge in bond yields, combined with new debt sustainability concerns in the eurozone” makes it difficult for the ECB to agree an early conclusion to reinvestments at this stage.

CBRT ANNOUNCEMENT (THU): There are currently no expectations for what the central bank may opt to do at its upcoming meeting. As a reminder, last month the CBRT opted to match market expectations with a 500bps hike to 30%. The Bank said tightening will continue until a significant improvement to the inflation outlook is achieved, while tightening will be further strengthened as much as needed in a timely and gradual manner. The CBRT also said it will continue to simplify, and improve the existing micro and macroprudential framework. The release noted inflation readings were above expectations in July and August. Analysts at CapEco at the time suggested the central bank is “now doing what many investors had hoped they would by raising interest rates sharply and taking a more serious stance against inflation”, and “All of this is helping to maintain investor optimism in the policy shift and keeping Turkey’s sovereign dollar bond spreads near multi-year lows.” CapEco suggested a lot more tightening needs to be delivered, as the desk expects rates to rise to at least 35% by year-end. Meanwhile, the latest CBRT survey upgraded its end-year CPI forecast to 68.01% (Prev. 67.22%) alongside GDP Growth to 4.1% (prev. 3.9%). The USD/TRY level was also revised higher to 30.0453 (prev. 30.1422), while the 12-month CBRT Rate was upped to 37% (prev. 32.44%).

JAPANESE TOKYO CPI (FRI): The Tokyo CPI is seen as a precursor to the nationwide release around two weeks later. Headline CPI is seen cooling to 2.7%, but the “ex-fresh food” metric is seen remaining at 2.5% in October. Analysts at ING suggest that “Tokyo’s CPI inflation is expected to slow mainly due to base effects. Headline inflation could come down to 2.6% YoY in October… However, a monthly comparison would show that the recent pick-up in global commodity prices and the weaker yen could add more upside pressure.” From a BoJ standpoint, Governor Ueda on Friday suggested inflation is likely to narrow the pace of its rise, then re-accelerate, reflecting changes in corporate wages and price-setting behaviour. Recent Bloomberg sources meanwhile noted the BoJ is reportedly mulling raising its FY23 price view closer to 3%, raising its FY24 price view to 2% or above, while the inflation outlook is said to keep FY25 around 1.6%.

US PCE (FRI): Currently, headline PCE is expected to rise 0.3% M/M from the prior 0.4% pace, while the Core is also expected to rise by 0.3%, accelerating from 0.1% previously. September’s headline CPI data rose by a little more than expected (0.4% M/M vs an expected 0.3%), although the core rate of inflation rose in line with expectations, by 0.3% M/M; the Y/Y rate of core inflation slowed to 4.1% from 4.4%. Pantheon Macroeconomics said that this reflected a larger increase in electricity prices, but is unlikely to persist. „The big picture here is that core inflation continues to slow, with the annual rate dipping in September, and the Q3 quarterly annualised gain was only 2.8%.“ Pantheon says the forces are in place for core inflation to fall substantially in H1 2024; using the CPI data as well as September’s PPI report, its economists say a 0.27% M/M increase in September’s core PCE deflator is implied. „Our forecast implies the core PCE rose at mere 2.5% annualised rate in the three months to September, compared to the previous three months, the slowest rate since January 2021 and closing in on the target,“ it writes, adding that „the annual rate will remain elevated, dipping to 3.7% from 3.9% in August, but the Fed will not wait until 2% Y/Y is reached before starting to ease.“ There will also be attention on Personal Income and Consumption to gauge the strength of the consumer, with income seen rising 0.4%, matching the prior month’s pace, while consumption is seen rising 0.3%, easing a touch from 0.4% previously. The data will help gauge Fed expectations, albeit the November decision is largely expected to see rates left unchanged as the Fed proceeds carefully and with markets almost fully pricing this in, currently with a 98% probability. There is a c. 40% probability of another hike by January, a hot report may exacerbate these odds, but a cool report will help with evidence that the Fed is done with rate hikes. Meanwhile, further out the curve the first cut is fully priced in by July, which is somewhat at odds with the Fed’s dot plot and higher for longer messaging.

This article originally appeared on Newsquawk.

This article was written by Newsquawk Analysis at www.forexlive.com.

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Forexlive Americas FX news wrap: Yields turn lower but stocks battered anyway. FX flat 0 (0)

Markets:

  • WTI crude down 20-cents to $88.14
  • US 10-year yields down 7.6 bps to 4.91%
  • Gold up $5 to $1978
  • S&P 500 down 56 points, or 13%
  • GBP leads, NZD lags

Equities took another beating but there were signs of optimism elsewhere. Buyers arrived in fixed income after a test of 10s early in US trading that got to 4.995% but not through. Gold and oil gave back gains, in part due to a report about hostage negotiations in Gazaw.

In FX, there was some stability that might have been paralysis as 150.00 continues to hold in USD/JPY and uncertainty reigns. The antipodeans were soft but not overly so as AUD/USD fell 17 pips and NZD/USD declined by 22 — both staying in recent ranges.

Cable reflected some of the optimism as it trended to 1.2165 from 1.2100 as it marked a double bottom just below the figure. The euro also chopped higher.

In all, the deep confusion about what will happen in bonds, USD/JPY and the Middle East is making for a wait-and-see market. Stocks were hit hard though in a broad move as TSLA continues to retreat following a disappointing earnings report. Next week will be critical with a busy slate of earnings including Microsoft, Alphabet and Visa on Tuesday.

This article was written by Adam Button at www.forexlive.com.

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US stocks close at session lows. Nasdaq gets hammered. 0 (0)

US stocks are closing the session at the lows with the Nasdaq index leading the way.

The final numbers are showing:

  • Dow industrial average -286.91 points or -0.86% at 33127.27
  • S&P index -53.84 points or -1.26% at 4224.15
  • NASDAQ index is down -202.38 points or -1.53% at 12983.80

For the trading week, the NASDAQ fell over 3%.

  • Dow industrial average fell -1.61%
  • S&P index fell -2.39%
  • NASDAQ index -3.16%

Helping to pressure the stocks into the close, is the S&P’s technical break and close below its 200-day moving average at 4233.13. It was the 1st close below that moving average since March 22.

Concerns about interest rates, the Middle East, Washington stagnation all contributed to anxiety in the US stock market. Next week a slew of earnings will be released including 4 of the so-called Magnificent 7 – Microsoft, Alphabet, Meta and Amazon. In addition, there are a number of other large cap names scheduled to announce their earnings (see the schedule here).

This article was written by Greg Michalowski at www.forexlive.com.

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US 2023 fiscal deficit $1.695 trillion vs $1.375 trillion in 2022 0 (0)

What happens to the deficit when the economy turns? I know some of this is long-term infrastructure spending but if the bond market is signalling problematic deficits, some tough choices are going to have to be made.

  • Sept deficit $171B vs -$78.6B expected
  • Sept 2022 deficit $430B

The deficit in the 2023 fiscal year was larger than every pre-covid deficit.

This article was written by Adam Button at www.forexlive.com.

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Stocks are lower for the week, but earnings will refocus trader’s attention next week. 0 (0)

It has been a negative week for the major US stock indices, as rates moving higher, geopolitical tension, and dysfunction in Washington. That dynamic does not seem to be going away anytime soon.

However next week we get a slew of corporate earnings with something for everyone. A total of 4 of the „Magnificent 7“ are scheduled to be released including Microsoft, Alphabet, Meta, and Amazon.

Tesla – another of the 7 – already released this week (it was a disappointment). Nvidia and Apple will announce in the future.

In addition to the big 4, there are a number of other large cap companies scheduled for release.

Below are the major companies on the earnings calendar (* are companies who will announce before the open):

Monday:

  • Phillips*
  • Logitech

Tuesday:

  • Coca-Cola*
  • Verizon*
  • GE*
  • 3M*
  • GM*
  • Microsoft
  • Alphabet
  • Visa
  • Texas Instruments

Wednesday:

  • Boeing*
  • T-Mobile*
  • Hilton*
  • General Dynamics*
  • Meta
  • IBM
  • servicenow

Thursday:

  • Altria*
  • Southwest*
  • Northrup Grumman*
  • Merck*
  • Amazon
  • Intel
  • Ford
  • Chipotle

Friday:

  • Exxon Mobil*
  • Chevron*
  • Phillips 66*
  • Colgate-Palmolive*

This article was written by Greg Michalowski at www.forexlive.com.

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Credit Agricole: Unraveling the reasons behind the USD’s recent underperformance 0 (0)

Synopsis: Despite its historical strength and the ‚USD smile‘ framework, the USD’s recent subdued performance has left market observers questioning the continued applicability of this model. Credit Agricole delves into the factors affecting the USD’s momentum and highlights the potential paths for the currency moving forward.

Key Takeaways:

  1. Synchronized G10 Rates and Yields: One of the chief factors that may have hampered the USD’s surge is the synchronized movement of most G10 rates and yields. This synchronous movement has marginally improved the USD’s relative rate appeal, making it less of a standout amidst its peers.

  2. Fed’s Signal on Financial Conditions: The Federal Reserve has hinted that a combination of higher US rates, increased yields, and risk aversion could dampen the urgency for additional rate hikes. This signaling potentially curbs aggressive bullish sentiments for the USD.

  3. Rising Foreign Portfolio Outflows: The US has witnessed a surge in foreign portfolio outflows from its fixed income markets. This trend is attributed to deteriorating fiscal prospects in the US coupled with diminishing FX reserves. Such outflows can act as a drag on the USD’s strength.

  4. Overhang of USD Long Positions: An accumulation of long positions on the USD could be indicating market saturation, making further bullish movements harder to achieve.

  5. The ‚USD Smile‘ Framework: While recent events have made market participants question the relevance of the ‚USD smile‘, Credit Agricole believes it remains a pertinent FX market model. The primary channel that could bolster the USD, under this framework, is a sudden surge in risk aversion leading to a robust inflow into US safe-haven assets.

Conclusion: While recent dynamics have posed challenges to the USD’s dominant trajectory, the ‚USD smile‘ remains a relevant tool to understand potential currency movements. The USD might find significant support if global markets witness heightened risk aversion, channeling more investments into safe-haven US assets. Investors should be vigilant of global risk sentiments to gauge future USD movements.

For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.

This article was written by Adam Button at www.forexlive.com.

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Fed’s Bostic: We are not going to see a recession 0 (0)

  • Inflation has come down a lot, should continue
  • Economy has been resilient
  • But business contacts say a slowdown is coming
  • Not going to see a recession, inflation will go to 2%
  • Don’t think there will be rate cuts before middle of next year
  • Economy still has a lot of momentum
  • Inflation will ebb slowly; Fed will need to be cautious, patient and resolute

As always is the case, you don’t really have to talk about the R-word unless there is a risk of it materialising. So, that sort of speaks for itself. But among all the major economies, it does seem like the Fed is best prepared to weather a slowdown at the moment.

This article was written by Justin Low at www.forexlive.com.

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ForexLive European FX news wrap: Dollar mixed, markets stay cautious 0 (0)

Headlines:

Markets:

  • CAD leads, NZD lags on the day
  • European equities lower; S&P 500 futures down 0.2%
  • US 10-year yields down 5.5 bps to 4.932%
  • Gold up 0.5% to $1,982.84
  • WTI crude up 1.5% to $89.71
  • Bitcoin up 4.4% to $30,001

Traders are feeling sidelined for the moment awaiting further key developments in all areas, before really firming up any convictions. The bond selling hasn’t yet resulted in 5% yields in 10-year Treasuries, with flows also balanced out somewhat by uncertainty and rising tensions in the Middle East.

Stocks are pinned down for now but US futures are pointing to modest losses, although European indices are hammered down towards the end of the week.

In FX, it’s all about watching for USD/JPY at the 150.00 mark. The pair briefly clipped the figure level according to some quotes and that triggered a drop to around 149.60-70 before keeping just under 150.00 again now.

The pound also fell for a moment after a weak UK retail sales data, with GBP/USD slipping to 1.2095 before holding flattish around 1.2135 currently.

The loonie is the one leading gains on the day, helped out by higher oil prices with commodities still impacted by the Israel-Hamas conflict and worries surrounding the region.

WTI crude is up 1.5% to $89.71 while gold is also underpinned and testing the June and July highs at $1,983-87 on the day.

We’re approaching the weekend and that could explain the more cautious approach for now, after having seen a similar take last Friday already.

This article was written by Justin Low at www.forexlive.com.

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Nasdaq Composite Technical Analysis – „Make it or break it“ moment for the index 0 (0)

The good news on the economy continues to be
trumped by further tightening in financial conditions due to rising Treasury
yields, and the tensions in the Middle East increasing. In fact, on a
forward-looking basis, these events are likely to weigh on the economy further
down the road, which is not a good thing for the market. Yesterday, the US Jobless Claims beat
expectations once again but the Continuing Claims missed for a second time in a
row, which might be signalling that laid off people are finding it harder to
find another job fast.

Nasdaq Composite Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Nasdaq
Composite broke down and it’s now at a key support around
the 13174 level. This is where we can expect the buyers to step in with a
defined risk below the level to position for a rally into the top trendline around
the 13700 level. The sellers, on the other hand, will want to see the price
breaking lower to increase the bearish bets into the 12274 level.

Nasdaq Composite Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we have a
minor trendline adding an extra layer of confluence to the
13174 support level. This is likely to be a “break it or make it” moment for
the Nasdaq Composite as a break to the downside would open the door for much
lower prices.

Nasdaq Composite Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that if we
were to get a bounce here, the sellers are likely to lean on the previous support now turned
resistance
around the 13340 level where we can also
find the 50% Fibonacci
retracement
level and the red 21 moving average. The
buyers will want to see the price breaking above that resistance zone as well
to invalidate the bearish setup and target the highs with more conviction.

This article was written by FL Contributors at www.forexlive.com.

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